SYLLABUS INTERAMERICAN UNIVERSITY OF PUERTO RICO METROPOLITAN CAMPUS FACULTY OF ECONOMICS AND ADMINISTRATIVE SCIENCES ECONOMICS SCHOOL

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1 INTERAMERICAN UNIVERSITY OF PUERTO RICO METROPOLITAN CAMPUS FACULTY OF ECONOMICS AND ADMINISTRATIVE SCIENCES ECONOMICS SCHOOL I. GENERAL INFORMATION SYLLABUS Title : International Finance Code : INBU 8170 Credit : 3 Academic term : Professor : Office hour : Phone number : Mail address : II. COURSE DESCRIPTION Analysis of the international financial environment. Review of financial risk inherent to international businesses. Description of problems when implementing corporate financial principles in other countries and of the financial aspects of the relationship between main and subsidiary company. III. OBJECTIVES 1. Discuss the open-macroeconomics issues related to international business and Finances. 2. Analyze balance of payments accounting. 3. Discuss the recent theoretical and empirical research of open-macroeconomics with applications to international business finances. 4. Discuss how various international monetary systems work 5. Discuss the financial risk inherent to international businesses. 6. Discuss the recent theoretical and empirical research with respect to arbitrage, hedging and speculation. 7. Discuss the recent empirical research with respect to international financing and investment. 8. Discuss the relationship between related companies with respect to financial issues.

2 9. Discuss the recent empirical research with respect to related companies. 10. Discuss foreign direct investment (FDI) implication to related companies investments. IV. CONTENT 1. Introduction to open-macroeconomics and international finance. 1.1 Trade balance. 1.2 Different monetary systems. 1.3 International finance environment. 2. Financial risk. 2.1 Arbitrage. a. Currency arbitrage. b. Interest arbitrage. c. Extensions. 2.2 Hedging. a. Hedging exposure to foreign exchange risk (FER). b. Financial and operational hedging of exposure to FER. c. Hedge ratio. 2.3 Speculation. a. Spot and derivative markets. b. Buy and sell signals. 3. International financing and investment. a. Short term financing and investment. b. Long-term capital structure and cost of capital. c. Portfolio investment. 4. Foreign direct investment (FDI). V. ACTIVITIES 1. Students should read the material before the discussion in class. 2. Students are required to search for some topics, literature, and financial practices in the internet to select their research questions that are part of the evaluation. 3. Presentations of the selected topics in class individually or in small groups. 2

3 VI. EVALUATION Evaluation Description Points Percentage of total evaluation Required research Literature review of a topic selected by topic* the professor % A free-choice Selected by the student and subject to the topic* professor approval % Presentation Presentation (in groups) of the class topics 25 10% Participation Class participation and feedback to groups presentation 25 10% Total % *The research topics should be analyzed in a critical manner with appropriate references. Also, should satisfy the course objectives. The minimum acceptable work is 3,000 words and the maximum not to exceed 5,000 words. APA style is required. Any inconvenience or any condition that will not enable a student to take one of the required evaluations should be discussed with the instructor before the date of the evaluation. VII. SPECIAL NOTES Auxiliary Services or Special Needs Services Students that require special auxiliary services or special assistance must visit the office of Mr. José Rodriguez, at the University Orientation Program located at the first floor of Harris Building, at the beginning of the course or as soon as the knowledge for the need of such services is acquired. Honesty, Fraud, and plagiarism Student General Regulation, Chapter 5 The lack of honesty, fraud, plagiarism and any other inappropriate behavior in relation to the academic work constitute major infringement sanctioned under the Student General Regulation. Major infractions, as provided by the regulation under student infringements can have as a result the suspension of the University for a defined period of time greater than a year or permanent expulsion from the University, among other sanctions. Use of Electronic Devices Cellular (mobile) telephones and any other electronic device that could interrupt the teachinglearning process or disrupt a milieu favorable for academic excellence will be deactivated. Critical situations will be dealt with in an appropriate manner. The use of electronic devices that permit the accessing, storing or sending of data during tests or examinations is prohibited. 3

4 V111. EDUCATIONAL RESOURCES Recommended references: Paul Krugman and Maurice Obstfeld (2010), International Economics. Theory and Policy, 7 th ed., Addison-Wesley: Maurice Obstfeld (2012), Does the Current Account Still Matter? Maurice Obstfeld (Feb, 2012), Understanding past and future financial crises, Maurice Obstfeld (Jan, 2012) Gross Financial Flows, Global Imbalances, and Crises, RBI Monthly Bulletin, Maurice Obstfeld (Nov, 2011) The International Monetary System: Living with Asymmetry, IX. BIBLIOGRAFY Obstfeld, Maurice and Kenneth Rogoff, New Directions in Stochastic Open Economy Models, JIE, 48, February, Obstfeld, Maurice and Kenneth Rogoff, The Six Major Puzzles in International Macroeconomics: Is there a Common Cause, NBER WP 7777, July, Imad A. Moosa (2003), International Financial Operations, Palgrave, Macmillan, ISBN: Lane, Philip (2000), The new open economy macroeconomics: A survey, Journal of International Economics, 54 pp Obstfeld, Maurice and Kenneth Rogoff, New Directions in Stochastic Open Economy Modell, JIE, 48, February, 2000 Lane, Philip R., The new open economy macroeconomics: a survey, Journal of International Economics, Elsevier, vol, 54(2), pages , August. Lucio Sarno, Toward a new Paradigm in Open Macroeconomy Modeling: Where do we Stand? Federal Reserve bank of St. Louis, May-June, 2001 Obstfeld, Maurice and Kenneth Rogoff, (2003), Six Major Puzzles in International Finance: Is there a common cause? NBER Macro Annual 2002 Obstfeld, Maurice, (2001), Mundell-Fleming Lecture: International Macroeconomics: Beyond the Mundell-Fleming Model, IMF Staff Paper, Vol. 47 Special Issue. Tornell, Aaron, and Philip Lane, Are windfalls a curse? A Non-Representative Agent Model of the Current Account, Journal of International Economics, Vol. 44 (1998), pp: Svensson, L., and A. Razin, The Terms of Trade and the Current Account: The Harberger- Laursen-Metler Effect, Journal of Political Economy, Vol. 91 (1983), pp

5 Obstfeld, Maurice, (2002), Exchange Rates and Adjustment: Perspective from the New Open Economy Macroeconomics, NBER WP *Puerto Rico Planning Board, Balance of Payments; Recent Issues. Olivier Blanchard and Francesco Giavazzi, The U.S. Current Account, the Dollar, the Euro and the Yen, NBER (I ll you the paper) Frommel, Michael, Ronald MacDonald and Lukas Menkhoff, Markov switching regimes in a monetary exchange rate model, Economic Modeling, Volume 22, June 22, Issue 3, pp Nelson Mark, 2001, International Macroeconomics and Finance (Blackwee) Chapter 3. Bacchetta, Philippe and Eric van Wincoop (2000) Does Exchange-Rate Stability Increase Trade and Welfare? American Economic Review 90, Clarida, Richard, Jordi Gali, and Mark Gertler, (2001), Optimal Monetary Policy in Open versus Closed Economies: An Integrated Approach, American Economic Review Papers and Proceeding 91 (2), Corsetti, Giancarlo and Paolo Pesenti, (2001), Welfare and Macroeconomic Interdependence, Quarterly Journal of Economics 116(2), Corsetti, G. and P. Pesenti, (2005), The simple geometry of transmission and stabilization in closed and open economies, NBER WP # Devereux, Michael, and Charles Engel, (2003), Monetary Policy in the Open Economy, Revisited: Price Setting and Exchange Rate Flexibility, Review of Economic Studies, 70. Duarte, Margarida, and Maurice Obstfeld, Monetary Policy in the Open Economy, Revisited: The Case for Exchange-Rate Flexibility Restored, manuscript, October, Gali, Jordi and Tommaso Monacelli, (2005) Monetary Policy and Exchange Rate Variability in a Small Open Economy, Review of Economic Studies.. Obstfeld, Maurice and Kenneth Rogoff, (2002), Global Implications of Self-Oriented National Monetary Rules, Quarterly Journal of Economics, 117, Benigno, Pierpaolo (2002), A Simple Approach to International Monetary Poly Coordination, Journal of International Economics, 57, Benigno, Gianluca, and Pierpaolo Benigno, (2003), [Price Stability in Open Economics, Review of Economic Studies, Betts, Caroline and Michael B. Devereux (1996), The Exchange Rate in a Model of Pricingto Market, European Economic Review, 40 (3-5), April, Betts, Caroline and Michael B. Devereux, (2002) Exchange Rate Dynamics in a Model of Pricing-to-Market, Journal of International Economics, 50, Bowman, David, and Brian M. Doyle, (2003), New Keynesian, Open-Economy Models and Their Implications for Monetary Policy, International Discussion Papers 762, Board of Governors of the Federal Reserve System. Senay, Ozge and Slan Sutherland, (2005), Can Endogenous Changes in Price Flexibility Alter the Relative Welfare Performance of Exchange Rate Regimes?, NBER WP, Kenneth M. Kletzer & Brian D. Wright, Sovereign Debt as Intertemporal Barter, American Economic RIview, vol. 90(3), pages Olivier Jeanne, Foreign currency debt and the global financial architecture, European Economic Review (44)4-6. M. Dooley, 2000 Debt Management and Cries in Developing Countries, Journal of Development Economics, Vol. 63, XII Rose, Andrew and Mark Spiegel (2002), A gravity model of sovereign lending: Trade, default and credit. NBER Working paper

6 Carmen M. Reinhart and Kenneth S. Rogoff, Serial Default and the Paradox of Rich to Poor Capital Flows, NBER WP 10296, (February, 2004). M. Dooley, P. Garber and D. Folkerts-Landau, The US Current Account Deficit and Economic Development. Collateral for a Total Return Swap, NBER Working Paper 10727, August, Frommel, Michael, Ronald MacDonald and Lukas Menkhoff, Markov switching regimes in a monetary rate model, Economic Modeling, Volume 22, Issue 3, pp Dixit, Avinash, Games of monetary and fiscal interaction in the EMU, EER 45, Clarida R., Jordi Gali, and Gertler, M., A simple framework for international monetary policy analysis Journal of Monetary Economics, Vol. 49, Issue 5, pp Dooley, M, Folkerts-Landau and P. Garber, An Essay on the Revied Bretton Woods Systems, NBER WP Easterly, William, What did structural adjustment adjust?: The Association of policies and growth with repeated IMF and World Bank adjustment loans, Journal of Development Economics, Volume 76, Issue 1, pp Chang, Roberto and Andres Velasco, Monetary and the Currency Denomination of Debt: A Tale of Two Equilibria, Kennedy School of Government Working Paper Series, Harvard University, Cambridge, Massachusetts. Calvo, Guillermo A., Alejandro Izquierdo, Luis Fernando Mejia, On the Empirics of Sudden Stops: The Relevance of Balance Sheet Effects. NBER Working Paper No Céspedes, Luis Felipe, Roberto Chang, and Andrés Velasco, Balance Sheets and Exchange Rate Policy, American Economic Review, Vol. 94, No. 4. Rev. 2/2012; 11/2013 6